New forex traders are more prone to making mistakes compared to professional traders. But that just comes with the territory and is to be expected. The earlier that traders learn from their mistakes, the better traders they will become over time.
Here is a guide on six trading mistakes and how to avoid them or quickly fix them.
Mistake 1. Going Big Early
One of the biggest mistakes new forex traders make is depositing a large amount of money and risking more capital than they should. Trading in the early days is a learning experience and the vast majority of new traders will not see much success.
The best way to avoid this costly mistake is to seek out a brokerage firm like FBS that provides cent accounts. The minimum deposit is very low at around 10 euros and the broker provides generous leverage of 30 times the deposit.
Losing 10 euros while practicing a trading strategy in a live market is a reasonable cost of doing business. Losing 100 or 1,000 euros on the other hand could be financially devastating for new traders.
Mistake 2. Not Having A Strategy
Successful entrepreneurs and profitable traders have a lot in common. They both started at zero, developed a successful strategy over the years, and are now rewarded financially. Both groups certainly had their share of setbacks and may have wanted to call it quits at some point.
But they didn’t give up because they had confidence in their strategy and were able to weather any near-term disruption.
New traders that don’t have an appropriate strategy will end up losing money much like the entrepreneur with no business plan.
Forex traders should understand how to read charts and understand how currencies react to economic news to become a better trader. YouTube and other online platforms are a great source of information for traders of all levels, especially beginners.
Mistake 3. Seeing Isn’t Believing
Many successful traders tend to flaunt their wealth on the internet and may make it seem easy to make a living. This is a difficult trap as seeing is often believing. New traders could fall into the trap of thinking that trading is the easiest way possible to become rich.
In reality, more than 70% of new traders lose money, and perhaps the best way to avoid assuming trading is to seek out and find a mentor or trading coach. People with more experience should be able to explain the many difficulties they faced along their trading journey.
Mistake 4. Ignoring Risk Management
Risk management is one of the most underappreciated aspects of trading. But it also happens to be among the most important because it saves new traders a lot of money and pain.
Here is a simple question for new traders: What happens when a trade goes against you? Do you double down on the position and hope for the best? Or, do you cut your losses early and move on to finding the next trading opportunity.
Traders that answered the first option are guilty of throwing good money after bad money. Once a trade goes in the opposite direction, new and undisciplined traders tend to brush it off to bad luck or poor timing instead of acknowledging a mistake.
Experienced traders on the other hand accept a small loss as soon as it is clear the trade isn’t working. They have no desire to wait around and watch a small loss transform into a large one.
Mistake 5. Focusing On Other Markets
Expert forex traders are always aware of what is going on in the equity universe and other markets. But they aren’t looking for trading opportunities in other markets because it isn’t their area of expertise.
Forex traders might be tempted to try and take advantage of one or more of the stocks that rose 1,000% in a few short months in 2020. If this is what a new trader is looking for, by all means, ditch the forex market for stocks.
But don’t spend time following stocks and forex. There isn’t enough mental capacity (or computer screen space) for both. Be sure to pick one trading venue and stick to it.
Mistake 6. Not Doing Your Homework
Here is another question for would-be traders: At the end of a trading session what would you do? Dedicated forex traders that want to better understand and improve their craft will take a look back at the day and review their trades.
They will look for clues on why a trade went wrong and revisit trades that paid off. If this is done on a consistent basis, patterns will emerge that better help traders identify in advance winning trades and avoid losing ones. This comes with experience and isn’t necessarily something that can be taught.
Traders that aren’t willing to do their homework after hours will miss out on learning on their own a lot of valuable knowledge.
Conclusion: Learn From Your Mistakes
Making mistakes is something that will happen to new and experienced traders so it might be inevitable to avoid them. The question is will you learn from them and evolve or be doomed to make them again?